The recent highly anticipated Jerome Powell speech today has provided a reason for stocks to sell off. Shares of the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) were down 2% at the time of writing.

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Investors were broadly expecting Powell to comment on concerns about rising inflation and U.S. Treasury yields. It appears Powell has not assuaged the market’s concerns to a degree many were expected, given this stock market decline.

Let’s dive into what the key takeaways were for investors coming out of this speech.

What the Jerome Powell Speech Means for Investors

• Good news first: Jerome Powell indicated he believes “There’s good reason to expect job creation to pick up.” The main drivers of an improvement in employment data are expected to be an accelerated vaccine rollout and new fiscal stimulus.
• Additionally, his comments around a reduction of the current unemployment rate of 6.3% to the 4% level as still requiring stimulus is bullish for stocks. Maximum employment is now being defined as some level below 4%.
• Other good news for stocks: Powell indicated interest rates are likely to stay near-zero for some time, even if inflationary pressures may indicate rates should rise. There’s ample patience on the Federal Reserve’s side to continue with its near-zero interest rate policy.
• However, comments from Philadelphia Fed Chair Patrick Harker on Wednesday contradicted this somewhat. Harker indicated an interest rate move could materialize as early as late-next year. He said, “I’m not looking at a hike anytime in 2022. If there is one, it’s towards the later end of it or in 2023.”
• Accordingly, investors in U.S. Treasury notes have been broadly selling. The yield on the U.S. 10-Year Treasury is 1.55% at the time of writing. Seemingly, the market is trying to time what the long-term interest rate will be, and is factoring in hikes sooner rather than later.
• To quell these concerns, Powell did say that the bond market movement in recent weeks has caught his eye. However, the Federal Reserve is keeping its eye more on whether or not signs of tightening in the financial system, or disorderly conditions, materialize. He said, “It’s always the case that if conditions do change materially, the committee is prepared to use the tools that it has to foster achievement of its goals.”
• Bottom line: Inflationary concerns are taking hold. Indeed, the massive amount of fiscal and monetary stimulus being injected into the market today are furthering these concerns. Powell’s response has been underwhelming for investors.

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article.